Agricultural tariffs barrier to beneficial worldwide trade

August 1, 2006

Editorial

The suspension last week of the Doha Round of multilateral trade negotiations — named after the capital of Qatar, where the talks began in 2001 — under the auspices of the World Trade Organization, is a sad commentary on the political systems of the major industrialized countries of the world. It could be tragic for underdeveloped countries, which had been promised opportunities to grow out of poverty through increased trade, but that hope was dashed.

The Doha Round failure also suggests some shortcomings of the WTO system as an effective way to reduce trade barriers and make trade freer and therefore more beneficial to more people.

The stated purpose of the Doha negotiations was to reduce trade barriers in agricultural and manufactured goods in ways that would be most beneficial to poorer countries but would also benefit more industrialized countries as well.

Most poorer countries find it difficult to compete in manufactured goods, but might do better with agricultural products. However, most industrialized countries, including the United States but to a greater extent European countries, protect their own farmers from competition through extensive taxpayer subsidies and tariffs on imported agricultural products. The Doha Round was supposed to level the playing field by providing freer access to markets in richer countries.

Dan Griswold, who heads trade-policy studies at the libertarian Cato Institute, said the U.S. negotiators made a decent proposal last October, calling for richer countries to reduce their tariffs on agricultural products by 60 percent. But the Europeans wouldn’t go along. And with elections coming up in November, it was difficult for the Bush administration to push too hard for an agreement that might have meant some short-term pain for some U.S. farmers.

It is odd but true that agricultural interests have a surprisingly large influence in politics. In the U.S., Europe and Japan, thanks to modern methods, farmers now account for 1 percent to 2 percent of the workforce and little more than that of the overall economy. Yet their interests are tenderly guarded by the political system, through high tariffs, price fixing and unnecessary subsidies.

Perhaps the WTO was unable to break through the power of these entrenched interests because it operates on a mistaken premise that makes trade liberalization inherently difficult.

In multilateral trade negotiations, an existing barrier to trade — which harms consumers in the country that imposes it and reduces overall wealth (though it may benefit a small interest group) is treated as a benefit that will only be surrendered if all other countries give up theirs first. Thus a restriction that actually harms the country as a whole is guarded jealously. “Caving in,” which would actually benefit the country, is seen as weakness. No wonder the negotiations are tough.

The best course for the United States now would be to greatly reduce or eliminate its tariffs unilaterally on agricultural goods (which average around 12 percent), setting an example and benefiting U.S. consumers in one stroke. But don’t expect such sensibleness to break out before the election.